Foreign currency transaction ban sparks fears of hyperinflation
LEGAL and economic experts in Zimbabwe warned yesterday that the country would tip into hyperinflation after Finance Minister Mthuli Ncube tabled a legal instrument outlawing foreign currencies as legal tender and stipulating that all local transactions be settled in the Zimbabwe dollar unit.
Zimbabwe has been using multiple currencies, including the rand, US dollar and Botswana pula, since 2009, when hyperinflation forced the country to abandon its own currency.
The multiple-currency regime has remained in place until now and has been complemented by the introduction of bond notes after banks started to run out of US dollar notes in 2016. Yesterday, Zimbabwe directed through a statutory instrument that foreign currencies cease to be legal tender.
“With effect from June 24, 2019, the British pound, US dollar, South Africa rand, Botswana pula and any other foreign currency whatsoever shall no longer be legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe,” part of the statutory instrument reads.
It also legally tabled the re-introduction of the Zimbabwe dollar, with sources saying the new notes were set to be introduced on to the market.
The introduction of the Zimbabwe dollar and outlawing of foreign currencies as legal tender has stocked a heated debate on social media and other public spaces.
Economist Prosper Chitambara said: “He (Ncube) has caught the market unawares. Economic confidence is going to crash, because he has caught the market unaware. It’s shock therapy, and it might end up in hyperinflation and giving the government unfettered access to more printing of money.”
Legal resource organisation Veritas said the instrument was not intended to affect foreign currency accounts held by individuals and companies with local banks. The instrument did not affect “the use of foreign currency in those accounts to make payments overseas, nor does it affect the obligation to pay duties and taxes in foreign currency where required,” said Veritas.
However, Veritas stated: “The instrument has all the hallmarks of a hastily concocted measure to stop the downward spiral of the real-time gross settlement (RTGS) dollar against other currencies.”
Some public sector employees had asked for a support payment in foreign currency to help them meet their financial obligations, which have been affected by galloping inflation, which in May surged to 97.7 percent.
Another legal expert, Alex Magaisa, said the current RTGS dollar – which was made up of bond notes and bond coins, as well as electronic balances and mobile money balances – effectively constituted the new Zimbabwe dollar. He agreed with other experts, who said new bank notes would be introduced bearing the Zimbabwe dollar face. “Effectively the surrogate currencies (RTGS dollars) are the Zimbabwe dollar. What has happened is a change of name,” noted Magaisa. He added: “One can presumably expect new notes to be printed which will bear the Zimbabwe dollar brand as the current bond notes are retired.”
According to the government statutory notice, each bond note unit and each RTGS dollar is equivalent to a Zimbabwe dollar. It further explains that “each hundredth part of a bond note unit and each hundredth part of an RTGS dollar is equivalent to a Zimbabwean dollar cent”.